30 April 2012

TriQuint’s revenue drops 5% in Q1 as demand from Apple contractor Foxconn wanes

For first-quarter 2012, RF front-end component maker and foundry services provider TriQuint Semiconductor Inc of Hillsboro, OR, USA has reported revenue of $216.7m, down 3% on $224.3m a year ago and down 5% on $227m last quarter.

The end-market split was 68% Mobile Devices, 22% Networks and 10% Defense & Aerospace. The only greater-than-10% customer remains Foxconn Technology Group (Apple’s Taiwan-based manufacturing partner), but its contribution to TriQuint’s total revenue has fallen from 41% last quarter to 37% while Apple burns through its inventory of stop-gap iPhone 4S devices before the launch of the iPhone 5 (perhaps in June).

Mobile Devices market revenue fell 8% both sequentially and year-on-year to $148m. In particular, 3G/4G segment revenue was $119m, down 7% sequentially. Revenue from connectivity products (i.e. WiLink, largely wireless LAN, where TriQuint has broad penetration in smartphones) fell 24% to $20m, due to a combination of Q1 seasonality and a time gap between product lines, with demand for older products slowing while new products are just starting to ramp. However, GSM revenue from the 2G segment has regained momentum, up 26% to $9m. Excluding Foxconn, combined 2G, 3G and 4G cellular revenue from other customers was up 8% (compared with the typical seasonal decline of 10-15%), due to design wins primarily with customers in Korea and Taiwan. About two thirds of this growth was in 3G/4G products and one third in 2G products.

Despite being early to catch the smartphone wave in 2009, capacity constraints slowed TriQuint’s growth and customer penetration in 2011, especially as the firm focused output on Apple contractor Foxconn rather than other customers. “We are clearly seeing a good response from customers as we re-engage with the market post-capacity constraints,” says president & CEO Ralph Quinsey. “Key product drivers for revenue growth are our MMPAs [multi-mode power amplifiers] and transmit modules [seeing good order strength, especially in Korea and Greater China] and our dual products [currently sampling, for production in second-half 2012].” In particular, TriQuint’s new multi-mode and quad-band PA modules are now shipping in Samsung Galaxy SII and Huawei Honor smartphones. Also during the quarter, TriQuint opened its International headquarters in Singapore, strengthening customer relationships and supply chain efficiencies in the region.

Defense & Aerospace market revenue was $21m, up 18% year-on-year but down 4% sequentially, as program timing results in swings quarter-to-quarter. Nevertheless, ramps of new product programs like the F-35 Joint Strike Fighter and the TQP53 counter fire target acquisition radar (formerly known as EQ-36) are progressing as planned. TriQuint also reached a milestone in starting production shipments of GaN products for S-band radars.

Overall, revenue was better than normal seasonality in the first quarter. “We saw signs of improvement in some of our infrastructure markets,” says Quinsey. Networks market revenue was $47m, up 4% year-on-year and 10% sequentially as TriQuint begins to see signs of a recovery in carrier capital spending following a challenging 2011 (when infrastructure spending was down, due largely to macroeconomic weakness). In particular, Radio Access revenue (dominated by base-station products) grew 31% sequentially, bolstered by a one-time end-of-life demand worth $5-7m from a foundry customer (excluding foundry customers, base-station revenue was still up 20% sequentially). However, Transport revenue was down 3% sequentially (with optical revenue growth of 14% offset by declines in the point-to-point radio and cable product lines).

On a non-GAAP basis, gross margin has fallen from 40% a year ago and 31% last quarter to 30.4% as increased costs associated with placing the new 6-inch GaAs line in production in Richardson, TX offset improved product and business mix. Including legal expenses (related to anti-trust and IP claims against Avago) rising by $1.6m to $3.9m, operating expenses were $61.4m (28% of revenue), up by $5.5m from $56.9m last quarter.

Net income has fallen further, from $26.1m a year ago and $13.3m last quarter to $4.1m. During the quarter, total cash and investments grew by $32.6m to $194.9m, due mainly to lower capital expenditures (down from $32.5m to $14m) and improved working capital management (including the sale of an equity investment for $7m). The firm also has no debt.

As part of its transition in filter technology from chip-scale packaging (CSP, in the assembly & test facilities in Apopka, FL and Costa Rica) to next-generation wafer-level packaging (WLP, in the firm’s GaAs wafer fab), TriQuint plans to restructure its filter-related operations during Q2/2012, involving a charge of $12-14m, consisting of a non-cash charge of $10-12m (for excess equipment) and a cash charge of about $2m (for severance costs). “We are rightsizing our factories in Florida and Costa Rica as we transition to WLP and away from commodity duplexers towards a higher-value mix of products,” says Quinsey.

For second-quarter 2012, TriQuint expects revenue to fall 18% sequentially to $170-185m, well below initial expectations (mostly due to lower demand from Foxconn). Lower revenue will reduce factory utilization, driving gross margin down to 27-29%. Due also to litigation costs rising to about $11m (as the firm prepares for trial), the firm expects operating expenses to rise to $70m, contributing to a net loss per share of $0.10-0.15.

“Constraints restricted our customer diversity and increased revenue concentration [in 2011 and Q1/2012]. We are seeing a down side of that in Q2,” says Quinsey. “We anticipate a challenging second quarter in the Mobile Devices market, specifically with our largest customer [Foxconn],” he adds. Also, WLAN will continue to fall. “But I believe this is a short-term impact and I expect a recovery in Q3/Q4 with normal demand patterns going forward in a strong and growing market that we plan to fully participate in,” continues Quinsey.

TriQuint has expanded its capacity footprint and now has full site capacity, enabling it to address the entire market. “We are completing a capacity investment phase for the company that creates a near-term headwind but positions us well for future growth,” says Quinsey. “We expect to fully support all of our large customers that are making solid progress penetrating a broader revenue base,” he notes.

“We are adjusting that gap between older product lines and newer product lines. And some of our customers are seeing weaker demand, which puts pressure on the older product line,” comments Quinsey. “We have achieved design-win success with our new products, and I believe we will return to normal revenue levels and growth in the second half of 2012.”

See related items:

TriQuint’s quarterly revenue rises more-than-expected 5%

TriQuint’s revenue falls 6% in Q3

TriQuint’s Q2 and Q3 revenue hit by product focus

TriQuint’s quarterly revenue falls 11% to $224.3m

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